May 16 (Bloomberg) -- U.S. stocks rose as oil prices held below $49 a barrel and a weaker-than-expected report on New York manufacturing eased concern that the Federal Reserve will step up the pace of interest-rate increases.

Bank shares such as Citigroup Inc. led the gains. Retailers climbed after Lowe's Cos., the world's No. 2 home-improvement chain, reiterated its annual profit forecast.

``The picture for the market is generally pretty bright,'' said Edwin Miska, who manages about $1 billion for First Investors Management Co. in New York. ``If oil can settle in at a lower level in the $40s as opposed to the $50s, that's almost like a rebate to consumers and to businesses.''

The Standard & Poor's 500 Index increased 11.64, or 1 percent, to 1165.69. The Dow Jones Industrial Average climbed 112.17, or 1.1 percent, to 10,252.29. The Nasdaq Composite Index added 17.65, or 0.9 percent, to 1994.43 for its highest close since April 12.

About 11 stocks advanced for every three that declined on the New York Stock Exchange. Some 1.5 billion shares changed hands on the Big Board, 9.4 percent less than the three-month daily average.

Crude oil for June delivery lost 6 cents to $48.61 in New York after earlier touching $47.60, the lowest since Feb. 18. Oil extended last week's 4.5 percent slide after the secretary general of OPEC said the cartel could boost production capacity by the end of this year.

`Valuations Attractive'

``If we can keep oil prices down, we have a possibility of having a 10 percent'' return in stocks over the next year, said Jeremy Siegel, finance professor at University of Pennsylvania's Wharton School. ``Valuations are very attractive now.''

Last month, the S&P 500 traded at a multiple of 18.6 times reported earnings, its lowest price-earnings ratio since 1996. Today, the benchmark is valued at 19.1 times profit.

A Fed gauge of New York state manufacturing in May unexpectedly contracted after two years of growth. The index, which gives a clue to the current performance of U.S. industry, dropped to minus 11.1 from 2 in April. Economists expected an increase to 11.7, according to a Bloomberg News survey.

An index of financial companies rallied 1.7 percent, the biggest gain among 10 industry groups in the S&P 500. Citigroup, the world's No. 1 financial-services company, added 89 cents to $46.80. Bank of America Corp., the third-largest U.S. bank, jumped 72 cents to $45.85.

A Fed Pause?

``The market needs to see that inflation pressures have abated sufficiently,'' said Bruce Bittles, chief investment strategist at Robert W. Baird & Co. in Nashville, Tennessee. ``If we continue to get some weaker economic numbers and commodity prices continue to slump, the Fed will react to that I think by at least pausing in their efforts.''

The prospect of the Fed pausing its interest-rate increases helps stabilize the value of bonds owned by banks, brokers and insurers, and also helps sustain demand for mortgages and loans.

Reports on producer and consumer prices due later this week may give investors more clues as to whether inflation is under control. Producer prices likely rose 0.4 percent in April, according to the median estimate of economists surveyed by Bloomberg. That follows a 0.7 percent gain in March. Consumer prices climbed 0.4 percent in April after rising 0.6 percent the month before, a May 18 report may show.

The Fed earlier this month lifted its overnight bank-lending rate a quarter-point to 3 percent, its eighth straight increase since June, and restated its commitment to continue rate hikes at a ``measured'' pace.

Retailers Advance

Lowe's jumped $2.94 to $55.80. The company reiterated its annual profit forecast for as much as $3.34 a share even as first- quarter sales missed the company's prediction because cold weather in March reduced customer traffic.

Larger rival Home Depot Inc., which will report first- quarter earnings tomorrow, added $1.08, or 3 percent, to $37.37 for the largest gain in the Dow average. A gauge of retailers advanced 2.3 percent for the biggest rally among 24 industry groups in the S&P 500.

Nursing-home operators climbed after a U.S. agency proposed new reimbursement rules that avoid a $1.5 billion cut sought by the White House. Manor Care Inc., which owns and operates long- term care centers in the U.S., rose $3.70, or 11 percent, to $37 for the steepest gain in the S&P 500. Smaller competitor Kindred Healthcare Inc. advanced $2.87 to $38.70.

Overnite Corp. surged $12.94, or 44 percent, to $42.52 after United Parcel Service Inc., the world's largest package-delivery company, agreed to buy the trucking company for $1.25 billion in cash. UPS said it will pay $43.25 for each share of Overnite, a 46 percent premium over the closing price May 13. UPS added $1.03 to $73.18.

Energy Shares

A measure of energy shares posted the only decline among 10 S&P 500 industry groups, sinking 0.6 percent. Chevron Corp., the second-biggest U.S. oil company, dropped 77 cents to $50.51. Exxon Mobil Corp., the world's largest publicly traded oil company, slid 35 cents to $53.35.

Dow Chemical Co. lost $1.14 to $43.93. The largest U.S. chemical maker was cut to ``neutral'' from ``overweight'' by JPMorgan Chase & Co. analyst Jeffrey Zekauskas. He cited concern about the company's ``commodity-oriented business'' as profit margins shrink on products such as ethylene and propylene.

The Reuters-CRB Index of 17 commodities fell 0.3 percent to 293.09, extending last week's 2.2 percent retreat, on concern that demand for raw materials is waning. The gauge has slumped 9.1 percent since reaching a 24-year high on March 16.

QQQQs

The S&P 500 shares, called Spiders, jumped $1.08 to $116.80. Nasdaq-100 tracking shares, known by their QQQQ symbol, climbed 24 cents to $36.48.

S&P 500 futures expiring in June advanced 10.40 to 1167.10 on the Chicago Mercantile Exchange. Nasdaq-100 Index futures added 7.50 to 1481.50.

The Russell 2000 Index, which tracks companies with a median market value of $523 million, rose 1.7 percent to 591.71. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, gained 117.96, or 1 percent, to 11,475.87. Based on changes in the Wilshire, the value of stocks increased by $147.5 billion.

Bank of America Corp. (BAC US)
Chevron Corp. (CVX US)
Citigroup Inc. (C US)
Dow Chemical Co. (DOW US)
Exxon Mobil Corp. (XOM US)
Home Depot Inc. (HD US)
Kindred Healthcare Inc. (KND US)
Lowe's Cos. (LOW US)
Manor Care Inc. (HCR US)
Overnite Corp. (OVNT US)
United Parcel Service Inc. (UPS US)

To contact the reporter on this story: Dune Lawrence in New York at dlawrence6@bloomberg.net.

Last Updated: May 16, 2005 17:27 EDT